Forex - USD/JPY Flows: Broke above 110 but looks difficult to hold


 00:16 (GMT) 14 Jan

  [Forex Flows]

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USD/JPY Flows: Broke above 110 but looks difficult to hold (0101-QGDR-C01)

USD/JPY rose to the highest since May, now above the 110 mark. There are no fundamental triggers for the extension of Monday's rally. E-minis extends higher early in Asia as US-China story looks to be brightening and thus provide USD/JPY with some basis to reach higher.
Japan trading centres reopen following the long weekend, and likely also helped the yen weakness as we have seen during the resumption following the week-long holiday in Japan at the start of the year. This could be partly attributed to yen selling pressure amid outgoing portfolio and FDI flows.

USD/JPY Flows: Broke above 110 but looks difficult to hold (0101-QGDR-C02)

However, the case for further USD gains against the JPY looks weak if it is based mostly on the phase 1 trade deal being passed. The US employment report didn't justify any significant move in equities or bonds, but inasmuch as it was seen as a "golidilocks" release, may have encouraged buyers of the higher yielders on the basis of a further decline in volatility. Still, USD/JPY vol is actually little changed since Friday, and the post-Iran decline may have run its course. As with the equity risk premium, the ratio between then 3 month yield spread and 3 month USD/JPY vol suggests this current move is out of line, and is suggesting short term value around 109. 3 month vol would need to decline from currently around 5.1 to 4.6 to justify the current level of USD/JPY.


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